CESTAT: Notional Value of Free Drawings Supplied by Maruti to Vendors Not to be Included in Excise Valuation
Pranav B Prem
The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), comprising Justice Dilip Gupta (President) and Mr. P.V. Subba Rao (Technical Member), has held that the notional cost of drawings and designs supplied free of cost by Maruti Suzuki India Ltd. to its vendors cannot be included in the assessable value of parts or components manufactured by the vendors and cleared to Maruti for the purpose of payment of central excise duty.
The appeal was filed by M/s Bosch Ltd., a vendor supplying automotive components to Maruti Suzuki. The core issue in the case was whether the specifications in the form of drawings and designs provided by Maruti Suzuki to its vendors free of cost should be treated as an additional consideration and hence be included in the assessable value of excisable goods as per Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
Bosch Ltd., like other vendors, manufactured parts as per Maruti's requirements. To ensure uniformity and product quality, Maruti provided product specifications and technical drawings free of charge to its potential vendors. These specifications helped the vendors understand the technical needs and to quote appropriate prices. Once a vendor was selected, a letter of intent was issued, and the vendor would then prepare detailed engineering drawings and designs based on the specifications provided by Maruti. These vendor-prepared drawings were used in manufacturing the final parts.
The department's contention was that the value of the initial specifications/drawings provided by Maruti formed an integral part of the overall design and development process. Therefore, as per Rule 6 of the Valuation Rules, the notional cost of these free drawings should be added to the assessable value of the final goods for the purpose of central excise duty. Based on this premise, show cause notices were issued, and the adjudicating authority confirmed the demand, holding that the specifications provided by Maruti needed to be factored into the valuation.
However, Bosch Ltd. argued that the drawings provided by Maruti only served as a starting point and that the actual engineering work, design finalization, and development of detailed manufacturing drawings were carried out by the vendors at their own cost. They asserted that their own cost calculations and quotations already reflected all development expenses, and hence there was no basis for artificially inflating the assessable value by adding a notional amount for the free drawings.
The Tribunal examined the issue and referred to its earlier decision in Denso India Private Limited v. Additional Director General (Adjudication) [Excise Appeal No. 52419 of 2022], where it had clearly held: “The inevitable conclusion, therefore, that follows from the aforesaid discussion is that the notional cost of drawings and designs supplied free of cost by Maruti to the vendors cannot be included in the assessable value of the parts and components manufactured by vendors and cleared to Maruti for the purpose of payment of central excise duty.”
Relying on this precedent, the Tribunal observed that the notional value of designs that were not purchased or incurred as an expense by the vendor could not be treated as a part of the assessable value. It further clarified that there was no flow of consideration, actual or deemed, from Maruti to the vendor in the form of these specifications, and therefore, no addition to value was warranted under the applicable valuation rules. In light of this finding, the Tribunal allowed the appeal filed by Bosch Ltd., set aside the impugned adjudication order, and held that the notional cost of Maruti's free drawings and designs was not dutiable under central excise. Accordingly, the appeal was allowed and the demand set aside.
Appearance
Shri S.C. Vaidyanathan, Advocate for the Appellant
Shri Rakesh Agarwal, Authorised Representative for the Department
Cause Title: M/s Bosch Ltd. v. Commissioner of CGST & Central Excise, New Delhi
Case No: Excise Appeal No. of 50587 of 2025
Coram: Justice Dilip Gupta [President], Mr. P.V. Subba Rao [Technical Member]
